Once-Wayward Loans ‘Reperforming’ for Freddie Mac

In the latest sign that the U.S. is slogging through its bad residential mortgage problem, government-chartered company Freddie Mac has found new use for more than $1 billion in once-delinquent loans.

The second-largest mortgage finance company said it created 31 pools of rehabilitated loans for a new breed of mortgage-backed security, supplementing its longstanding program of securitizing newly originated home loans, the firm’s website showed on Monday. The loans were once part of Freddie Mac’s traditional MBS until owners defaulted.

The “reinstated” loans in the new bonds do not include mortgages whose terms have been modified, Freddie Mac said on Nov. 17 when it announced that the program would begin. It said it would first sell bonds with loans that have been current for at least 12 straight months, but that issuances could contain loans showing as few as four months of payments.

Troubled loans have been a key source of loss for Freddie Mac since 2008, when its federal regulator seized control of the company and of rival Fannie Mae. Freddie Mac through last quarter has required $56 billion from the U.S. Treasury to stay afloat in its role, which has expanded since the financial crisis as private mortgage funding remains nearly dormant. Freddie Mac earlier this month said its plan to securitize the once-troubled loans was a key step in “conserving value” for taxpayers.

Like the original MBS, the new bonds will carry Freddie Mac’s guarantee. They won’t be eligible for the most-active corner of the market where newly originated loans are pooled for trading, however.